The Implications of the Recent Change in the Situation on the Silver Market

This essay is based on the Premium
Update posted on February 5th, 2010.

Is America going to hell? It certainly seems that way if you read about the "post-American" world
and listen to the television news programs that eulogize America's position
as the premier superpower. That is the reason why it was refreshing to read
a reassuring article in latest issue of Atlantic Magazine.

The writer, James Fallows, claims that if you look at the comforts and abundance
of American life, even at a time of recession, you realize that America is
still one of the best places in which to live. Even if America is supposedly
in a decline, it still has a standard of living that is the envy of most of
the world. The simplest measure of whether a culture is dominant is whether
outsiders want to be part of it, he says. There are still plenty of people
around the world for whom an American green card would be a dream come true.
You don't see many people clamoring to immigrate to China.

Fallows points out that there have always been periods during which it seemed
that America was falling behind or falling apart --presidential resignations,
assassinations, race riots, divisive wars, failing schools, failing industries,
etc. In fact, America has a tradition of gloom and doom that goes all the way
back to the first European colonists. Pick any decade in American history and
you will notice the same cycle of despair and renewal that seems to be built
into the American psyche. There have been other periods when it seemed that
America was falling behind, as, for example, with Sputnik when Nikita Khrushchev
said "Whether you like it or not, history is on our side and we will bury you." Later,
there were the Japanese, the Germans and now China that serve as standards
whose achievements dramatize American decline.

Barack Obama, while he was still campaigning, put this feeling into words.

"The dream that so many generations fought for feels as if it's slowly slipping
away, and most of all, we've lost faith that our leaders can or will do anything
about it," he said during a campaign speech.

There are many reasons to believe in America's resilience, says a historian
that Fallows interviewed. There is the good luck of geography and resources,
the First Amendment's success in reducing religious friction, and the decentralization
of power and culture. Racial relations, a major problem in American history,
have never been better.

Fallows points out that China has about four times as many people as does
America and that someday its economy will be larger. That is good for everyone
because a business-minded China is likely to be more benign. Besides, China
has plenty of reasons to worry about its own future. There is the issue of
a looming environmental disaster due to the overly rapid development. Then
there is the demographic legacy of the one-child policy, which will leave an
aging population dependent on relatively fewer young workers. Politically,
tensions between an open economy and a closed political system with constraints
on free expression might cause instability.

America, he says, is likely to lead in the development of future industries
and technologies that depend on a society that is flexible, open and inventive.

American society is perfectly positioned for such innovation. The American
advantage depends on two pillars of American strength -- continued openness
to immigration and a continued concentration of excellent universities that
people around the world wish to attend. Although there are troops of engineers
and computer scientists marching out of Chinese universities, China lags behind
in scientific discovery and technological innovation. Of the top 20 universities
in the world ranked according to scientific research papers, 17 are American.
Of the top 100 in the world, none are Chinese.

"What I've seen as I've looked at the rest of the world has generally made
me more confident of America's future, rather than the reverse," writes Fallows. "What
is obvious from outside the country is how exceptional it is in its powers
of renewal: America is always in decline, and is always about to bounce back."

Fallows doesn't ignore the problems facing America, which he sees mainly as
a failing of the political system. He ends the article on a positive note.

"America has been strong because, despite its flawed system, people built
towards the future in the 1840s, and the 1930s, and the 1950s. During just
the time when Frederick Law Olmsted designed Central Park, when Theodore Roosevelt
set aside land for the national Parks, when Dwight Eisenhower created the Pentagon
research agency that ultimately gave rise to the Internet, the American system
seemed broken too. They worked within its flaws and limits, which made all
the difference. That is the bravest and best choice for us now."

The technical part of this essay is also encouraging, as precious metals have
recently rallied strongly, even though the USD Index moved up as well. This
week, we would like to provide you with additional comments on silver with
emphasis on the cyclical tendencies present on this particular market (chart
courtesy of http://stockcharts.com.)

Silver is currently right in the middle of the bottoming area, but please
note that although there were times when bottoms/tops formed exactly as these
tendencies suggested, it is not the main way of using this tool. It is designed
to let one know more or less when the bottom / top is likely to form and what
signals to look for during a given time-frame. For instance, during the bullish
cycle, one can expect big moves to the upside and corrective small downswings.
Naturally, the opposite is true during the bearish cycles - for instance right
now. Either way, what we need to look for signs of the coming bottom and we
currently expect them to materialize before the end of the month.

The point here is that we've seen such sign on Friday, when silver (here:
SLV ETF) and other markets managed to rise even though the USD Index moved
higher. Consequently, silver, and other markets ceased to respond to the bearish
information (rising USD), which is one of the most bullish signs that one can
see. Moreover, before it bounced back, silver moved very close to the rising
blue support level, so we might expect it to rally from here at least for several
days.

Summing up, although it may seem as another counter-trend rally in
silver, gold, and PM stocks, the recent change in the situation on these markets
was important enough for us to send a Market
Alert to our Subscribers.
It may be the case PMs move temporarily lower for a day or two, but it appears
that the next short-term move will be up.

To make sure that you are notified once the new features are implemented,
and get immediate access to my free thoughts on the market, including information
not available publicly, I urge you to sign up for my free e-mail list. Sign
up today and you'll also get free, 7-day access to the Premium Sections
on my website, including valuable tools and charts dedicated to serious PM
Investors and Speculators. It's free and you may unsubscribe at any time.

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who
takes advantage of the emotionality on the markets, and invites you to do
the same.

His company, Sunshine Profits, publishes analytical software that anyone can
use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem
that may never be solved, PR has changed the world of trading and investing
by enabling individuals to get easy access to the level of analysis that
was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are
results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals
sector. For that reason it is his main point of interest to help you make
the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for
professional excellence and ethics for the ultimate benefit of society.

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